Data processing systems and method for creating efficient floater classes

ABSTRACT

A method for creating investment securities structured from interest-rate derivative and mortgage pool components is described. The method includes analyzing the risk elements of the derivative and mortgage pool components, structuring one or more classes of securities, at least one of which is backed by these components in combination, and issuing the structured securities. A computer program product and data processing system for practicing the method are also described. A novel investment security is disclosed which incorporates cash flows from mortgage pool components and cash flows coming from derivative components. Finally, a method of adding value to mortgage-backed securities is described.

This is a continuation of application Ser. No. 12/003,457 filed Dec. 26,2007 now U.S. Pat. No. 7,853,501, now allowed, which is a continuationof application Ser. No. 09/664,403, filed Sep. 18, 2000, which issued asU.S. Pat. No. 7,340,427 and which, pursuant to 35 U.S.C. §119(e)(1),claims priority based on provisional patent application Ser. No.60/154,040 filed Sep. 16, 1999, the contents of all of which are reliedon and fully incorporated herein by reference.

BACKGROUND OF THE INVENTION

A. Field of the Invention

The present invention relates to a process for creating investmentsecurities from pools of residential mortgages. More particularly, thepresent invention relates to a data processing system and method that(i) analyzes the risk elements of interest-rate derivatives and mortgagepools, (ii) structures floating-rate securities from interest-ratederivative and mortgage pool components and (iii) administers theresulting securities.

B. Description of the Related Art

A pool of fixed-rate mortgages, by itself, can be undesirable as aninvestment because of the possibility of prepayments. A borrower on aresidential mortgage generally can pay the balance of the loan at anytime (“prepay”) without substantial penalty or with no penalty. If thishappens, an investor in the mortgage pool must find an alternativeinvestment for the amount prepaid. Moreover, mortgage borrowers are morelikely to exercise their prepayment options at times when interest ratesare low. Thus, the investor likely will have to reinvest the mortgageprepayments at rates of return less than the rate of return on theoriginal investment.

The prepayment characteristic of a mortgage pool destabilizes its marketvalue. A decline in interest rates causes an increase in the mortgagepool's prepayments, magnifying the reinvestment problem and negativelyaffecting the value of the mortgage pool. A rise in interest ratescauses a decrease in prepayments, locking investors into a belowmarket-rate investment. Moreover, this negative effect of prepayments onvalue is difficult to predict. As a result, some investment accountshave policies prohibiting or limiting the acquisition of mortgage pools.

The destabilizing effect of a mortgage pool's prepayments can be reducedby a variety of methods, including transforming part of the pool's cashflow into a floating-rate bond. A floating-rate bond is one with aninterest rate that is reset periodically based on an index and thatvaries directly with changes in the index. When a floating-rate bond iscarved out of a fixed-rate mortgage pool, the remaining cash flow has aninterest rate that varies inversely with changes in the index. Thisremaining cash flow sometimes is called the companion inverse-rate bond.A commonly used index for floating-rate bonds and companion inverse-ratebonds is the arithmetic mean of the London interbank offered quotationsfor Eurodollar deposits with a maturity of one month (“LIBOR”).Typically, the rate is reset on a monthly basis.

The interest rate on a floating-rate bond usually has a minimum value or“margin” and a maximum value or “cap”. The margin and cap are set sothat the floating-rate bond sells at or close to a price equal to thebond's principal amount (a price of “par”). Since the interest rate on afloating-rate bond is reset monthly to current interest rates, thefloating-rate bond maintains its par value in the secondary mortgagemarket, unless the rate is constrained by its cap. This market valuestability makes a mortgage-backed floating-rate bond suitable as a moneymarket investment. Institutions have substantial sums that may beinvested for short periods of time, provided the sums can be invested ininstruments that will retain their value and are easily liquidated.These sums ordinarily are not invested in mortgage pools for the reasonsdiscussed earlier. However, they may be invested in mortgage-backedfloating-rate bonds. By and large, investors in money market instrumentsare indifferent to prepayments on the underlying mortgage pool becausethe prepayments easily may be reinvested on terms comparable to those ofthe original investment.

Traditionally, mortgage-backed floating-rate bonds were issued entirelyby Real Estate Mortgage Investment Conduits (“REMICs”) formed under§§860A-860G of Title 26 of the United States Code (the “REMIC Rules”).Under the REMIC rules, fixed-rate mortgages were contributed to a REMICpool as trustee and payments on these mortgages were allocateddisproportionately to bonds issued by the REMIC, including floating-rateand companion inverse-rate bonds. As a practical matter, the kinds ofdisproportionate allocations required to transform fixed-rate mortgagesinto floating-rate bonds must be made under the REMIC Rules.

Although the traditional method of issuing floating-rate mortgage-backedsecurities adds value, the method is inefficient. The REMIC Rules focuson defining a tax methodology for the disproportionate allocation ofmortgage payments. In accomplishing this, the REMIC Rules incidentallyimpose significant economic limitations on the creation of floating-ratebonds. In particular, the REMIC rules materially limit the use ofinterest-rate derivative instruments.

SUMMARY OF THE INVENTION

The present invention takes as its starting point the traditional REMICfloating-rate/inverse-rate structure. In this structure, the principaland interest cash flows from a pool of fixed-rate mortgages or mortgagesecurities (“mortgage assets”) are allocated dollar-for-dollar to thefloating-rate (“FLT”) and inverse-rate (“INV”) bonds.

As principal payments are received on the mortgage assets (typicallyeach month), every dollar received is used to pay down the principalbalances of the FLT and INV bonds, in each case in proportion to theirbalances. Therefore, the respective FLT and INV balances remain constantin relation to each other, and their aggregate balance equals that ofthe mortgage assets at all times.

Interest payments received on the mortgage assets are allocated to theFLT and INV bonds based on their interest rate formulas. These formulasare derived so that every dollar of interest received will be passedthrough as interest on one or both of the bonds. Interest payments arecalculated by applying the applicable per annum interest rate to theprincipal balance of the bond, as reduced from time to time. The FLTbond's interest rate increases as the reference index rises, while theINV bond's interest rate decreases. On a dollar basis, the two offseteach other precisely—an increase in interest payments to either ismatched by an equal decrease to the other. Chart 1 shows an example ofthe traditional REMIC FLT/INV structure.

CHART 1 Principal balance Interest rate Minimum rate Maximum rateMortgage assets $100,000,000 6.5%  6.5%   6.5% FLT  $76,470,588 LIBOR +0.35% 0.35%   8.5% INV  $23,529,412 3.25 × (8.15% − LIBOR)  0.0%26.4875%In this example, the FLT and INV interest rates vary at all levels ofLIBOR from 0% through 8.15%; at 8.15% LIBOR and higher, the FLT rate isat its maximum and the INV rate is at its minimum. Their weightedaverage interest rate is 6.5% (the interest rate of the mortgage assets)at all levels of LIBOR.

The FLT bond typically is structured to sell at par, whereas the INVbond typically sells at a discount. Therefore, if the principal balanceof the FLT bond can be increased and that of the INV bond can bereduced, their aggregate value will be higher, other factors being heldconstant. According to the principles of the present invention, a moreefficient structure can be created under appropriate market conditionsby introducing a derivative contract. Extending the example in Chart 1,we begin by creating the following REMIC FLT/INV structure representedin Chart 2:

CHART 2 Principal balance Interest rate Minimum rate Maximum rateMortgage assets $100,000,000 6.5% 6.5%  6.5% FLT  $92,857,143 LIBOR +0.7% 0.7%  7.0% INV  $7,142,857 13 × (6.3% − LIBOR) 0.0% 81.9%Now the FLT/INV interest rates vary at all levels of LIBOR from 0%through 6.3%. As in Chart 1, their weighted average interest rate is6.5% at all levels of LIBOR.

Next, the derivative contract (a so-called “corridor exchange”) is addedto this structure. Under this type of contract, Party A “swaps” interestpayments at a fixed rate with Party B in exchange for interest paymentsat a variable rate within a relatively tight index corridor, or set oflimits. For example, assume the FLT bond is Party A; it gives upinterest (on its principal balance) at 0.35% to Party B, a financialinstitution. This effectively reduces the FLT bond's margin from 0.7% to0.35%. Party B, in exchange, pays interest (on the same balance) to theFLT bond at a rate equal to:

-   -   LIBOR−6.3%, but with a cap of 1.85%        Party B pays no interest if LIBOR is 6.3% or lower, 1.85%        interest if LIBOR is 8.15% or higher, and interest at a variable        rate if LIBOR is between 6.3% and 8.15%. Party B's payment        effectively permits the FLT bond to receive increasing interest        payments above its otherwise maximum rate of 7.0%.

Therefore, by combining the corridor exchange and the structure shown inChart 2 within an investment trust, the following structure representedin Chart 3 is created:

CHART 3 Principal balance Interest rate Minimum rate Maximum rateMortgage assets $100,000,000 6.5%  6.5% 6.5% FLT  $92,857,143 LIBOR +0.35% 0.35% (i.e., 8.5% (i.e., LIBOR + 0.7% − 0.35%) (i.e., 7.0% − 0.7%− 0.35%) 0.35% + 1.85%) INV  $7,142,857 13 × (6.3% − LIBOR) 0.0% 81.9%The FLT interest rate varies at all levels of LIBOR from 0% through8.15% (as in Chart 1), and the INV interest rate varies at all levels ofLIBOR from 0% through 6.3% (as in Chart 2). Their weighted averageinterest rate varies from 6.175% (if LIBOR is 6.3% or lower) toapproximately 7.893% (if LIBOR is 8.15% or higher).

As Chart 3 shows, the invention results in a FLT bond with the sameinterest rate formula as the traditional FLT bond (Chart 1) but with ahigher principal balance. Therefore, its value is significantlyincreased. Under all market scenarios where this increase exceeds thereduction in value of the INV, the addition of the fixed-for-corridorexchange enhances the combined value of the FLT/INV bonds, increasingthe efficiency with which the bonds are issued. In the presentdisclosure, classes of floating-rate bonds that are structured in thisway are referred to as “efficient floating-rate classes” or “EFCs”, andseries of securities that include EFCs are referred to as “EFC Series”.

Chart 3 shows an exchange of fixed-rate payments for corridor paymentsand an integration of the corridor payments into the FLT bond payments.This exchange illustrates an advantage of the invention over traditionalFLT bond structures. As discussed above, payments within the traditionalstructure flow only one way; from the mortgage assets to the FLT and INVbonds. With the structure shown in Chart 3, payments can flow both ways;both to and from the FLT bond. When LIBOR exceeds 6.65%, Party Areceives net payments from Party B under the corridor exchange(LIBOR−6.3% received, minus 0.35% paid). However, when LIBOR is lessthan 6.65%, Party B receives net payments from Party A. By expandingone-way payment securities structures into two-way payment structures,the issuer obtains added flexibility and can be more responsive tomarket conditions. This allows the issuer to create its securities moreefficiently.

Chart 3 also shows how investment trusts can be used to add corridorexchange payments to the FLT bond payments. An investment trust is atrust formed and administered under §§671-679 of Title 26 of the UnitedStates Code (the “Grantor Trust Rules”). In the illustration, theoriginal FLT bond (Chart 2) is contributed to an investment trust andthe trustee, as owner of the original FLT bond, enters into the corridorexchange as Party A. Since the Grantor Trust Rules allow securities tobe created out of interest-rate derivative contracts, the trust mayissue the FLT bond (Chart 3) that adds the corridor payments to theoriginal FLT bond.

The charts in this section, like the examples in the attached drawings,are illustrative only. The variables in any given EFC Series, such asthe interest rate formulas and terms of the corridor exchange, willdepend on prevailing interest rates and other market conditions, whichchange continually. Moreover, the derivatives which may be used inaccordance with the present invention include, but are not limited to,calls, puts, caps, floors, collars, mortgage reference indexes,synthetic debt, and other interest-rate derivative contracts, inaddition to corridors. Similarly, the cash flows from mortgage pools mayinclude, for example, cash flows from REMICs, Financial AssetSecuritization Investment Trusts (FASITs), mortgage-backed securities,mortgage securities, or collateralized mortgage obligations. Theremaining sections of this application describe both the EFC Seriessecurities and the data processing system and method with morespecificity.

The present invention provides data processing systems and methods forplanning, structuring and administering EFC Series. EFC Series arecreated by integrating interest-rate derivative components with mortgagecomponents through the use of structures that combine investment trustpools, REMIC pools and other legal entities. The disclosed embodimentsfocus on the use of investment trust pools to add corridor payments tothe EFC Series asset base. However, the data processing systems for EFCSeries are designed with broader capabilities. Systems and methodsconsistent with the principles of the invention can process securitiesstructures that combine FASITs, formed under §§860H-860L of Title 26 ofthe United States Code, and other legal entities, as well as REMICpools, and investment trust pools. Systems and methods consistent withthe present invention may also process EFC Series backed by assets thatinclude, but are not limited to, calls, puts, caps, floors, collars,mortgage reference indexes, synthetic debt, and other interest-ratederivative contracts, as well as corridors.

If part of the cash flow for a floating-rate security can be obtainedmost economically from a corridor exchange, a corridor exchange accountis used to fund that component. If part of the cash flow for thesecurity can be obtained most economically from another kind ofinterest-rate derivative contract, a derivative account appropriate forthat kind of contract is used to fund that component. If part of thecash flow can be obtained most economically from mortgage assets, a poolof mortgage assets is used to fund that component. These various assetsare combined through the use of the most efficient legal structure.

The cost efficient transformation of derivatives and mortgages intofloating-rate securities increases the supply of capital available tosupport residential mortgages. This, in turn, reduces the cost ofmortgages to homeowners. The present invention is a process thatintegrates interest-rate derivatives with mortgage assets using the mostcost efficient structure available.

As disclosed herein, the EFC Series data processing systems consistentwith the principles of the present invention can be divided into threemodules generally corresponding to stages in the business process. TheRisk Analysis and Planning Module includes the systems that are usedinteractively during the planning period for an EFC Series. After a planis developed, the Deal Structure Module is activated to manage theprocess of preparing an EFC Series for issuance. The Deal StructureModule shifts operations to the Series Administration Module when theEFC Series is issued (“settlement”) and the Series Administration Modulecontrols the ongoing administration of the EFC Series.

BRIEF DESCRIPTION OF THE DRAWINGS

The accompanying drawings, which are incorporated in and constitute apart of this specification, illustrate embodiments of the invention andtogether with the description, serve to explain the principles of theinvention.

In the figures:

FIG. 1 is a block diagram representation showing an example of thesecurities created by the present invention. It shows the relationshipsof the securities to their interest-rate derivative and mortgage poolcomponents;

FIG. 2 illustrates an exemplary, traditional floating-rate bond fundedonly with a REMIC pool;

FIG. 3 illustrates an exemplary EFC floating-rate security, consistentwith the principles of the invention, funded with an interest-ratederivative component and a mortgage pool component;

FIG. 4 depicts an overview of the EFC Series System showing its RiskAnalysis and Planning Module, Deal Structure Module and SeriesAdministration Module;

FIG. 5 depicts the principal data processing systems components of theRisk Analysis and Planning Module of the EFC Series System;

FIGS. 6-1, 6-2, 6-3, 6-4, 6-5, 7-1, 7-2, 7-3, 7-4, 7-5, 7-6, 8, 9-1,9-2, 9-3, 9-4, 9-5, 9-6, 9-7, 9-8, 9-9, 9-10, 9-11, 9-12, 9-13, 9-14,9-15, 9-16, 9-17, 9-18, 9-19, 9-20, 9-21, 9-22, 9-23, 9-24, 9-25, 9-26,10-1, 10-2, 10-3, 10-4, 10-5, 11-1, 11-2, 11-3, 11-4, and 11-5illustrate exemplary application program output of the Risk Analysis andPlanning Module;

FIG. 12 depicts the principal data processing systems components of theDeal Structure Module of the EFC Series System; and

FIG. 13 depicts the principal data processing systems components of theSeries Administration Module of the EFC Series System.

DETAILED DESCRIPTION

FIGS. 1, 2 and 3 describe the new method used to create EFC Series. FIG.1 illustrates the integration of interest-rate derivative components andmortgage pool components into an EFC Series. FIGS. 2 and 3 show thevalue that is created by the EFC method. FIGS. 4 through 8 describe thedata processing-systems that implement this method.

A. EFC Series Method

FIG. 1 depicts the structure of an EFC Series. EFC Series are issued inClasses, each of which represents an interest in one or more of thePools established by the Series. A Pool is a set of specificallyidentified assets held by the issuer of the securities as part of theSeries. Typically, the interest represented by a Class is the right toreceive certain payments from the assets identified to the underlyingPool or Pools.

A Class may be issued directly to the public or may be issued by onePool established by the Series and contributed to another Poolestablished by the Series (an “internal” Class). In case of an internalClass, payments received by the Class from the first Pool become part ofthe second Pool and thereafter may be paid to other Classes funded fromthe second Pool. In this manner, payments on the assets underlying aSeries may be divided and combined in a variety of ways before finallybeing paid through to investors. In some cases, a Class may beestablished that represents an interest in a Pool with no assets (an“unfunded” Class). A Series may establish an unfunded Class so thatassets can be contributed to the Series, funding the Class, at a laterdate.

In FIG. 1, lines 1-31, 1-32, 1-33, 1-34 and 1-35 represent publiclyissued Classes of the EFC Series. Lines 1-61 and 1-62 represent unfundedClasses. Block 1-00 and the components within it all represent functionsof the EFC Series internal to the issuer. These internal componentsinclude IFA Class, IFN Class and the Group IN Classes, represented bylines 1-25, 1-27 and 1-26 respectively. As notational conventions, theletter F in a Class name denotes a FLT Class, the letter S denotes anINV Class, the letter E denotes an EFC Class, the letter M denotes anunfunded EFC Class and the letter I denotes an internal Class. Theletters A and N denote Pools and Classes related to Mortgage AssetAccounts A and N, respectively.

The Pools established by an EFC Series may be EFC Pools (blocks 1-14 and1-15), or REMIC Pools. A REMIC Pool may be a Single-Tier (block 1-11),Lower-Tier (block 1-12) or Upper-Tier (block 1-13) REMIC Pool. Theassets identified to these Pools may be mortgage assets (blocks 1-01 and1-02), or may be interest-rate derivatives (blocks 1-03 and 1-04). InFIG. 1, the mortgages of Mortgage Asset Account A are identified (line1-21) to Single-Tier REMIC Pool A as its assets and the mortgages ofMortgage Asset Account N are identified (line 1-22) to Lower-Tier REMICPool N as its assets. The interest-rate derivative of EFA ClassDerivative Account and the internal IFA Class are identified (lines 1-23and 1-25) to EFA Class Pool as its assets. The interest-rate derivativeof EFN Class Derivative Account and the internal IFN Class areidentified (lines 1-24 and 1-27) to EFN Class Pool as its assets. GroupIN Classes are identified (line 1-26) to Upper-Tier REMIC Pool N as itsassets.

EFA Class (line 1-32) represents ownership of EFA Class Pool (block1-14). Since the assets of EFA Class Pool are IFA Class (line 1-25) anda position (line 1-23) in EFA Class Derivative Account (block 1-03), EFAClass owns both of these assets. IFA Class, in turn, represents a claimto certain payments from Single-Tier REMIC Pool A (block 1-11). Thesepayments must come from Mortgage Asset Account A (block 1-01). Thus, aninvestor in EFA Class receives payments that combine payments from theinterest-rate derivative of EFA Class Derivative Account with paymentson the mortgages of Mortgage Asset Account A. By this method, aninterest-rate derivative component and a mortgage component areintegrated to create a new investment security—EFA Class.

Similarly, EFN Class (line 1-33) combines payments from theinterest-rate derivative of EFN Class Derivative Account (block 1-04)with payments on the mortgages of Mortgage Asset Account N (block 1-02).In this case, the payments from the mortgage component of EFN Class gothrough an additional step. First the payments are made (line 1-22) fromMortgage Asset Account N to Lower-Tier REMIC Pool N (block 1-12), thensome or all of the payments are allocated (line 1-26) by Lower-TierREMIC Pool N to Upper-Tier REMIC N (block 1-13). From Upper-Tier REMICN, part of the payments are allocated (line 1-27) to EFN Class Pool(block 1-15) and then passed through (line 1-33) to investors in EFNClass. The use of the Upper-Tier, Lower-Tier REMIC structure extends thekinds of disproportionate allocations that may be made under the REMICRules.

An EFC Series may have an unfunded EFC Factor Reset Pool (block 1-43).This Pool is a facility to make secondary market adjustments to themargins and caps of floating-rate Classes. Part of the value of afloating-rate Class derives from its par price and the initial marginand cap of the Class are set to accomplish this. However, unexpectedinterest rate changes may leave the Class trading at a significantdiscount or premium. If this happens, it may be desirable to restore theClass to a par price by adjusting its margin or cap with the cash flowof another interest-rate derivative.

The EFC Factor Reset Pool (block 1-43) is established, together with anunfunded MFA Class (line 1-61) and an inoperative EFA Class FactorAccount (block 1-41), when the EFC Series is issued. At a later time,the original EFA Class and EFA Class Factor Account, activated as anadditional interest-rate derivative, may be contributed (lines 1-51,1-52) to the EFC Factor Reset Pool and their cash flows integrated toform a modified floating-rate MFA Class (line 1-61) with the desiredmargin and/or cap. Similarly, at a later time, EFN Class may bedelivered to the issuer (line 1-54) to hold as an asset of EFC FactorReset Pool together with (line 1-53) EFN Class Factor Account (block1-42). EFC Factor Reset Pool then funds MFN Class (line 1-62)integrating the cash flows from EFN Class and EFN Class Factor Account.

Generally, all the internal components of an EFC Series are establishedand all the EFC Classes issued on the same day. Thereafter, the Seriesreceives and pays money according to its original terms withoutdiscretionary action by the issuer or the investors in the Series.Amounts received on the assets of the Series are reallocated, but in theaggregate are paid through to investors in the publicly issued Classeson a monthly basis.

The value added by the EFC Series method and structure may be seen bycomparing a traditional floating-rate bond as shown in FIG. 2, with anequivalent EFC floating-rate security as shown in FIG. 3. In FIG. 2, thefloating-rate bond, F Class, is funded entirely from a REMIC pool. InFIG. 3, the comparable EFC security, EF Class, is funded from the sameREMIC pool and from a interest-rate derivative account. EF Class makesthe same payments as does F Class. However, it is constructed by theeconomically more efficient EFC Series method.

In FIG. 2, the assets of the REMIC Pool (blocks 2-11 and 2-12) are, forexample, $600,000,000 Freddie Mac Participation Certificates (“PCs”)with an interest coupon of 6.5% (row 2-41). A PC is a certificaterepresenting ownership of a pool of underlying mortgage loans (block2-01). Freddie Mac holds the underlying mortgages and performs such pooladministrative tasks as collecting mortgage payments and enforcingremedies in the event of mortgage default. Administrative costs andexpenses are deducted from interest payments received on the mortgagesand the remaining interest is passed through on a monthly basis to theholders of the PCs at a “coupon” interest rate of 6.5%. Principalamounts received on the underlying mortgages also are passed through toPC holders on a monthly basis. Freddie Mac guarantees payment ofprincipal and interest at the coupon rate on the PCs.

The REMIC Pool (blocks 2-11 and 2-12) creates bonds out of the PC cashflow by means of a three step disproportionate allocation process,sometimes called an engineering process. First, the REMIC allocates aportion of the PC cash flow (block 2-11) to a series of plannedamortization classes (“PACs”). A PAC is a Class of bonds designated toreceive principal payments according to a predetermined schedule. Whenprincipal payments on the PCs are received by the REMIC, it allocatesprincipal to the PACs up to exactly the amount given by theirpredetermined schedules. The amount of principal received each month bythe REMIC will vary because of prepayments on the underlying mortgages.However, the REMIC gives allocation priority to meeting the PACschedules. Any variation in principal payments is reflected in theprincipal remaining to be paid by the REMIC to non-PAC Classes. Theremaining PC cash flow sometimes is called the supporting (“SUP”) cashflow (block 2-12). In order to make the priority principal paymentsaccording to the PAC schedules, the REMIC must create the SUP cash flowto absorb the prepayment variations.

The ratio of PAC cash flow to SUP cash flow reflects a market valuetrade-off. Increasing the size of the SUP cash flow, increases thelikelihood that payments on the PAC Classes will be made on schedule.This increases the price of the PAC Classes. However, increasing thesize of the SUP cash flow reduces the proportion of the cash flow thatis allocated to the more valuable PAC Classes. In FIG. 2, the REMICallocates $500,000,000 in principal to PAC cash flow (row 2-42) and$100,000,000 in principal to SUP cash flow (row 2-46). The PAC cash flowis used to fund PAC Classes A, B and C (lines 2-31) with interest ratesof 6.5% and principal amounts of $100,000,000 in the case of A Class,$200,000,000 in the case of B Class and $200,000,000 in the case of CClass (rows 2-43, 2-44 and 2-45).

This engineering increases the value of the cash flow directed to andpaid on the PACs, in comparison with its value when paid on the PCs, byincreasing the likelihood that the payments on these Classes willconform to investor expectations. On the other hand, this engineeringgenerally reduces the value of the remaining SUP cash flow.Nevertheless, the increase in value of the PACs more than compensatesfor the decrease in value of the SUP cash flow.

At the second step of its engineering process, the REMIC (blocks 2-11and 2-12) subdivides the PAC cash flow (block 2-11, row 2-42) intosequential A; B, and C Classes (lines 2-31, rows 2-43, 2-44 and 2-45).Sequential Classes are Classes that receive payments in a prescribedsequence. A predetermined amount of the principal received by the REMICis allocated to the sequential Classes as a group. However, rather thanmaking these principal payments pro rata among the Classes, theprincipal is paid first to one, then another of the Classes in theprescribed sequence. In the case of sequential PACs, this sequence isreflected in their PAC schedules. In FIG. 2, principal payments are madefirst to A Class, then to, B Class and finally to C Class. This step inthe engineering process results in Classes with different terms orweighted average lives (“wals”). A Class is sold to investors thatdesire short-term investments, B Class to investors that desiremedium-term investments and C Class to investors that desire long-terminvestments.

At the time the REMIC (blocks 2-11 and 2-12) was formed, the price of6.5% PCs was 99.70 (row 2-41). Industry practice is to quote prices interms of the amount to be paid for $100 of principal. Thus, at a priceof 99.70, the value of $600,000,000 principal amount 6.5% PCs is($600,000,000×99.70)/100=$598,200,000 (row 2-41). In a normal interestrate environment, among Classes with the same interest rate, valueincreases as term decreases. The values of A, B and C Classes are100.10, 100.00 and 99.90 respectively (rows 2-43, 2-44 and 2-45). Thevalue of each of A, B and C 30W, GARRETT, Classes is greater than thatof the PCs because the disproportionate allocation of principal hasreduced prepayment uncertainty or risk on the PACs. Among the PACs, AClass shows the greatest increase in value because it has the shortestterm or wal and has the greatest likelihood of paying according toschedule. B Class shows the next greatest increase and C Class the leastincrease in value.

At the third step in its engineering process, the REMIC (blocks 2-11 and2-12) allocates the SUP cash flow (block 2-12, row 2-46) between afloating-rate (“FLT”) Class, F Class (line 2-32), and its relatedinverse-rate (“INV”) Class, S Class (line 2-33). The SUP cash flow isreduced in value (in comparison to the value of the PC) because itreceives much of the prepayment risk on the underlying mortgages.However, in this third step the interest on the SUP cash flow isallocated so as to form a money-market instrument, F Class, the value ofwhich is not impaired by the high prepayment risk under most interestrate scenarios. This engineering step increases the value of the part ofthe SUP cash flow directed to F Class by increasing the likelihood thatthe payments on F Class will conform to investor expectations.Generally, this allocation reduces the value of the remaining SUP cashflow directed to S Class, but this reduction is more than offset by theincrease in value of F Class.

At the time the REMIC (blocks 2-11 and 2-12) was created, F Classrequired a margin of 0.35% and a cap of 8.5% (row 2-61) in order tocreate the necessary par price (row 2-47). Thus, the interest rateformula for F Class is LIBOR+0.35% with a cap of 8.5%, and the interestrate formula for S Class (as explained below) is 3.25×(8.15%−LIBOR) witha minimum value (“min”) of 0.0% and a maximum value (“max”) of 26.4875%(row 2-62). The SUP principal cash flow is allocated $76,470,588 to FClass (row 2-47) and $23,529,412 to S Class (row 2-48). Since S Classabsorbs additional prepayment risk allocated away from the PACs, andalso absorbs additional interest-rate risk allocated away from F Class,the price of S Class is reduced to 97.00 (row 2-48). Nevertheless, theaggregate value of F Class and S Class is $99,294,117 which exceeds thatof the SUP Class.

Under traditional floating-rate bond structures, when a FLT/INV Classcombination is issued from a SUP cash flow, each dollar of SUP principalreceived is used to pay down the principal balances of the FLT and INVbonds, in each case in proportion to their balances. Interest paymentsare received on the SUP cash flow at a constant rate (“coupon”),frequently the same as the underlying PC coupon rate, and are passedthrough as interest on one or both of the bonds. The interest isallocated to the FLT and INV Classes based on their interest rateformulas, but the weighted average of these rates always is equal to thecoupon rate.

Under these traditional payment rules, the fraction of the SUP principalthat is allocated to the FLT Class depends on the SUP coupon rate andthe maximum interest rate on the FLT Class. The formula for theallocation of principal to the FLT Class and its related INV Class is:

(coupon/max) allocated to the FLT Class; ((max − coupon)/max) allocatedto the INV Class.This formula allocates the greatest possible amount of SUP principal tothe FLT Class and almost always is the one used with traditional REMICexecution.

In FIG. 2, the SUP principal amount is $100,000,000, its interest rateis 6.5% (row 2-46), and the F Class max is 8.5% (row 2-61). Thus, theSUP principal allocated to F Class is(6.5%/8.5%)×$100,000,000=$76,470,588 (row 2-47) and the SUP principalallocated to S Class is ((8.5%−6.5%)/8.5%) or(2.0%/8.5%)×$100,000,000=$23,529,412 (row 2-48).

First priority for the allocation of SUP interest is to make theinterest payments to the FLT Class that are needed to give it a parprice. The INV Class receives whatever interest remains after meetingthis requirement. If principal is allocated between FLT Class and INVClass in the proportions shown above, then under the rules of algebra,the INV Class interest rate formula must be:(FLT Class principal/INV Class principal)×(FLT Class max−FLT Classmargin−LIBOR); or(coupon/(max−coupon))×(FLT Class max−FLT Class margin−LIBOR);where the fraction (FLT Class principal/INV Class principal), or(coupon/(max−coupon), sometimes is called the leverage of the FLT/INVcombination. In FIG. 2, the leverage is $76,470,588/$23,529,412=3.25 andF Class max−F Class margin is 8.5%−0.35%=8.15%. Thus, the interest rateformula for S Class is 3.25×(8.15%−LIBOR) (row 2-62).

An appreciation for the source of value added by the FLT/INV bondstructure can be gained from an examination of the average values ofLIBOR. Since 1990, the average value of LIBOR has been approximately5.35%. Thus, F Class will pay interest on average at a rate ofapproximately 5.35%+0.35%=5.7%. Since the SUP cash flow pays interest ata rate of 6.5%, each $1 of principal allocated to F Class on averagewill free-up 6.5%−5.7%=0.8% surplus interest that will be paid to SClass. Although F Class is allocated less than a proportionate share ofthe SUP interest, the allocation increases the value of F Class.

If $1 of principal is allocated to F Class for every $1 of principalallocated to S Class, the average interest-rate of S Class isapproximately 6.5%+0.8% (floater surplus)=7.3%. If $2 of principal isallocated to F Class for every $1 allocated to S Class, the averageinterest-rate of S Class increases to approximately 6.5%+0.8%+0.8%=8.1%.Since, in FIG. 2, $3.25 of principal is allocated to F Class for every$1 allocated to S Class (rows 2-47 and 2-48), the average interest-rateof S Class increases to approximately 6.5%+(3.25×0.8%)=9.1%. Although SClass is allocated a greater share of the interest rate risk, S Class iscompensated for assuming that risk. The greater the leverage, thegreater the interest-rate S Class receives, on average.

In FIG. 2, the F/S Class leverage is increased only to 3.25 because thetraditional method of creating mortgage-backed floating-rate bondsartificially limits the source of the interest payments on theseClasses. The traditional structure requires that all interest payable onF Class come from the underlying SUP cash flow, no matter how high the FClass interest rate might be and no matter how unlikely it might be thatinterest rates ever would reach that level. Under this artificial limit,the SUP interest, at the rate of 6.5%, must be sufficient to pay F Classinterest at its maximum rate of 8.5%. The only way to accomplish this isto limit the proportion of the SUP principal that is allocated to FClass so that:(F Class principal)×8.5%=all available interest=(SUP principal)×6.5%.This equation leads to the maximum F Class principal of(6.5%/8.5%)×$100,000,000=$76,470,588 and the leverage of 3.25.

This artificial limitation on the F/S Class leverage is economicallyinefficient. The value of $100 in principal of F Class is $100. Thevalue of $100 in principal of S Class is $97. Every additional $100 ofSUP cash flow that can be allocated to F Class, potentially adds $3 invalue to the Series. In the long run, this reduces the cost ofresidential mortgages to homeowners.

The exemplary EFC Series structure displayed in FIG. 3 overcomes theartificial limitation on the F/S Class leverage shown in FIG. 2. The EFCSeries shown in FIG. 3 issues EF Class with the same cash flow as FClass. However, EF Class is funded in part with SUP cash flow (block3-12) and in part with a interest-rate derivative instrument paidthrough a Derivative Account (block 3-02). The integration of DerivativeAccount 3-02 into the Series allows the SUP leverage to be increasedfrom 3.25 to 13. It allows $92,857,143 in principal amount of the SUPcash flow to be allocated to the more valuable EF Class (row 3-47). Incomparison, only $76,470,588 in principal amount of the SUP cash flowwas allocated to F Class (FIG. 2, row 2-47).

The improved series execution shown in FIG. 3 is accomplished bydividing the spread between the interest rate coupon on the SUP cashflow and the max required for the FLT Class, into lower and upperranges. The lower range is from 6.5% to 7.0% and the upper range is from7.0% to 8.5%. The lower range is funded directly from SUP interest. Theupper range is funded by purchasing a LIBOR corridor from outside theREMIC cash flow-the EFC exchange (lines 3-23 and 3-24). Since the highvalues of the FLT Class interest rate no longer must be paid with SUPinterest, a greater proportion of the SUP cash flow may be assigned tothe more valuable FLT Class. The EFC corridor used to fund the upperrange is purchased with fixed-rate periodic payments from SUP interestand has a notional principal amount (“NPA”) equal to the decliningprincipal balance of the new FLT Class, EF Class.

In order to create EF Class (line 3-33) with the same cash flow as FClass (FIG. 2, line 2-33), the EFC Series in FIG. 3 first creates IFClass (line 3-22), an internal FLT Class with a maximum value equal to7.0%, the maximum of the lower range. IF Class is held by the issuer asan asset of EF Class Pool (block 3-13), and EF Class Pool enters into anEFC exchange with Derivative Account (block 3-02) to purchase a LIBORcorridor funding EF Class interest in the upper range. The terms of theEFC exchange are set so that the net cash flow to EF Class Pool is equalto the cash flow required by EF Class. Since IF Class Pool makes fixedmonthly payments in exchange for the corridor payments, the cash flowrequired for these fixed monthly payments is added to IF Class margin.Thus, IF Class margin is equal to the sum of EF Class margin and thefixed payment rate under the EFC exchange. Once IF Class margin is set,the boundaries of the LIBOR corridor can be determined. The lowerboundary of the corridor is IF Class max less IF Class margin and theupper boundary of the corridor is EF Class max less EF Class margin.

In FIG. 3, the cost of the LIBOR corridor is 0.35%. Thus, IF Classmargin is set equal to 0.7% (0.35% ES Class margin plus 0.35% EFCexchange payments) and the LIBOR corridor boundaries are determined tobe 6.3% (IF Class max, 7.0%, less IF Class margin, 0.7%) and 8.15% (EFClass max, 8.5%, less EF Class margin, 0.35%). The following calculationshows that IF Class and the EFC exchange together provide EF Class Poolwith the net cash flow required for EF Class.

EF Class interest from IF Class from corridor total if LIBOR <= 6.3%LIBOR + .7% − .35% 0.0% LIBOR + .35% if 6.3% < 7.0% − .35% LIBOR − 6.3%LIBOR + .35% LIBOR <= 8.15% if 8.15% < LIBOR 7.0% − .35% 1.85% 8.5%Since the interest rate formula for IF Class is LIBOR+0.7%; min=0.7%,max=7.0% (row 3-61), the interest on the SUP cash flow that remains forthe new INV Class, ES Class (line 3-32), is calculated to be payableaccording to the formula: 13×(6.3%-LIBOR); min=0.0%, max=81.9% (row3-63).

EF Class Pool (block 3-13) and Derivative Account (block 3-02) are theEFC Class structural elements that integrate the 6.3% to 8.15% LIBORcorridor into the funding base for EF Class (line 3-33). EF Class Poolis governed by the Grantor Trust Rules, not the REMIC Rules. In thiscase, the EFC Series structure makes it possible to assign a greaterproportion of the SUP cash flow to the more valuable FLT Class. It alsomakes possible an assignment of a greater proportion of the SUP interestto the companion INV Class. The average interest rate on ES Class isexpected to be 15.3% (row 3-48), compared to 9.1% for S Class (FIG. 2,row 2-48). Under these market conditions, ES Class will command the samemarket price (row 3-48) as S Class (FIG. 2, row 2-48). This means thatthe EFC structure adds value in an amount equal to the product of theincrease in the amount of SUP principal assigned to the FLT Class andthe price differential between the FLT Class and INV Class:($92,857,143−$76,470,588)×($100.00−$97.00)/$100=$491,597 (row 3-50).

The EFC Series structure shown in FIG. 3 displays interrelationshipsamong a number of complex market conditions. First, the amount of SUPprincipal that can be reassigned to the FLT Class depends on the widthof the LIBOR corridor that is integrated into the EFC Series. The widthof the corridor depends on the amount of SUP interest that can beassigned to make the fixed-rate periodic payments for the corridor. Theamount of SUP interest that can be so assigned depends on the yieldrequired by the INV Class buyer and also on the amount of interest thatcan be reassigned from the PAC cash flow to the SUP cash flow. The yieldrequired by the INV Class investor depends upon the degree to whichprepayments on the Mortgage Asset Account are allocated to the SUP cashflow. The amount of interest that can be reassigned from the PAC cashflow depends on the wal requirements of PAC investors and on theconvexity of the interest-rate yield curve. The degree to whichprepayments on the Mortgage Asset Account are allocated to the SUP cashflow, depends upon the amount of call and extension protection requiredby PAC Class investors.

In addition, Derivative Account 3-02 may include calls, puts, caps,floors, collars, swaps, mortgage reference indexes, synthetic debt, andother interest-rate derivative contracts without departing from thespirit of the present invention.

B. EFC Series Data Processing System

FIG. 4 demonstrates an exemplary data processing system to support thecreation of EFC Series. At the planning level, systems are required tosupport the calculations needed to determine the marketinterrelationships just discussed. In particular, the data processingsystems must be able to generate distributions of expected interestrates and estimate costs of interest rate corridors. The data processingsystems must be able to calculate mortgage pool prepayment scenarios andintegrate these calculations with interest rate distributions. The dataprocessing systems must be able to interactively modify REMIC paymentallocation rules and correlate the modifications with market derivativescosts. After a plan for an EFC Series is determined, the data processingsystems must be able to create and verify a variety of data filesreflecting the complex structural components required for an EFC Series.After EFC Series is issued, the data processing systems must be able tomaintain the integrity and reliability of these data files.

The EFC data processing system may include three interrelated systemsmodules that run in a distributed applications environment on a networkof central processors and remote terminals (FIG. 4, block 4-01). Thesemodules may function on a Series by Series basis and can be organizedaccording to phases in the business process of creating EFC Series. FIG.4 depicts the system of three modules (blocks 4-01, 4-02 and 4-03)together with interacting but separate systems (blocks 4-21 to 4-28).

The Risk Analysis and Planning Module (block 4-01) functions during theplanning period for an EFC Series. After a plan is formulated, the DealStructure Module (block 4-02) is activated in order to validate the planand initialize the asset files, class files, payment files anddisclosure files for the Series. The two modules interact to respond tochanges in plans up until a few days before the securities are issued.The Series Administration Module (block 4-03) is activated several daysbefore the securities are issued and interfaces with the Deal StructureModule to complete and verify the class and payment files. The SeriesAdministration Module functions on a continuing basis during the life ofthe Series.

FIG. 5 depicts the principal process components of the Risk Analysis andPlanning Module (FIG. 4, block 4-01). Three of the components functionprimarily on data sourced from outside the EFC Series System. These arethe Asset Pool Prepayment Model (block 5-01), the Derivatives Model(block 5-02) and the REMIC Pool Planning and Stress Process (block5-03). Analysis from the Asset Pool Prepayment Model combines (line5-22) with user data (line 5-13) to form the primary data base for theREMIC Pool Planning and Stress Process. Analysis from the Asset PoolPrepayment Model also combines (line 5-21) with user data (line 5-12) toform the primary data base for the Derivatives Model.

The Asset Pool Prepayment Model (block 5-01) receives user datadescribing the kinds of assets expected to be used to fund the EFCSeries (line 5-11). The assets may be described by general category,such as $400,000,000 new origination 30-year 6.5% PCs and $200,000,000new origination 15-year 6.0% PCs, so that the planning process may beginbefore capital is committed to asset acquisition. If an asset is amortgage asset, such as a PC, the data includes values describing theunderlying mortgages such as their remaining term to maturity, loan ageand per annum interest rate. The data also may include projectedinterest rates and the anticipated effect of the projected rates onprepayments.

The Asset Pool Prepayment Model has access to a data base of historicalvalues of prepayments by kind of asset in the issuer's All Systems DataBase (FIG. 4, block 4-26). The All Systems Data Base is a centralrepository for corporate wide data. It is external to the EFC SeriesSystem, but is accessed by the EFC Series System for data entry andretrieval. Users of the EFC Series System can input asset type andprepayment rate parameters interactively, and receive output projectingexpected cash flow and comparing projections to selected historicalvalues. Industry standard rates referred to as “PSA” rates commonly areinput as prepayment parameters. Users can input interest rate scenariosinteractively and examine their impact on expected cash flows. FIGS. 6-1through 6-4 illustrate part of an exemplary, projected cash flow of aMortgage Asset Account calculated by the Asset Pool Prepayment Model.FIG. 6-1 to 6-4 constitute a single table which is properly viewed byplacing FIGS. 6-1 and 6-3 side by side and FIGS. 6-2 and 6-4 side byside, with FIG. 6-2 beneath FIG. 6-1. FIG. 6-5 is a table explaining thenotation and abbreviations used in the columnar headings of FIGS. 6-1 to6-4.

The Derivatives Model (block 5-02) is a series of application programsthat receive user data regarding expected interests rates and interestrate volatility (line 5-12). Interest rate data used by the Asset PoolPrepayment Model are coordinated (line 5-21) with this input to theDerivatives Model. The Derivatives Model also receives market data onbenchmark spot interest rates, such as Treasury yield curve rates, LIBORrates, reference PC coupon rates and mortgage rates. The DerivativesModel has access to a data base of historical values of benchmark spotinterest rates in the issuer's All Systems Data Base (block 4-26).

The Derivatives Model (block 5-02) has functionality to calculateprojected distributions of interest rates based on, for example,stochastic lognormal, truncated lognormal and dispersion skewedtruncated lognormal formulae and user input parameters regarding term,volatility, mean drift and reference forward rates. It can convert userinput and benchmark rates into forward rates for the interest rateindexes planned for the EFC Series and from these conversions, canprepare interest rate scenarios to be used by the FLT/INV ClassStructuring Process (block 5-04) to calculate expected values for thefloater and inverse interest rate formulae planned to be used in the EFCSeries. From the distributions, it can determine likelihood estimates ofthe values of the floater and inverse interest rate formulae. From itsaccess to the All Systems Data Base (block 4-26), it can preparecomparisons of user based projected distributions with historicaldistributions of benchmark rates. FIGS. 7-1 though 7-4 illustrate partof an exemplary inverse cumulative distribution for LIBOR calculated bythe Derivatives Model. FIGS. 7-1 to 6-4 constitute a single table whichis properly viewed by placing FIGS. 7-1 and 7-3 side by side and FIGS.7-2 and 7-4 side by side, with FIG. 7-2 beneath FIG. 7-1. FIGS. 7-5 and7-6 are tables explaining the notation and abbreviations used in thecolumnar headings of FIGS. 7-1 to 7-4.

If a user proposes a plan for an EFC Series that includes one of moreinterest-rate derivatives, the user enters parameters describing thederivatives (line 5-12) into the Derivatives Model (block 5-02). Forexample, a user might enter parameters describing a corridor for LIBORranging from 6.3% to 8.15% and for terms ranging from 3 years to 11years. The user may enter cost information regarding some or all of theproposed derivatives. The Derivatives Model also receives data oncurrent market costs of interest-rate derivatives such as quotedperiodic costs for LIBOR based caps, floors and swaps. Based on userinput costs, market costs, historical costs or a combination of any ofthese, the Derivatives Model calculates estimated costs for thederivatives included in the EFC Series plan. The Derivatives Model hasaccess to a data base of historical values of benchmark interest-ratederivatives costs through the All Systems Data Base (block 4-26) andcalculates cost comparisons of the EFC Series derivatives costs, withhistorical costs. FIG. 8 is an exemplary chart prepared by theDerivatives Model showing projected costs of 0.01% LIBOR corridors,based on the distribution of LIBOR values shown in FIGS. 7-1 though 7-6.

The third major user input to the Risk Analysis and Planning Module(4-01) is the user data describing the planned Series Classes and thedegree to which they are supported by derivative assets and bymortgage-backed assets (line 5-13). Users can submit an initial plan fora Series funded entirely with mortgage-backed assets and then addderivatives as modifications to the initial plan. The data include theprincipal amount (or notional principal amount), principal type,interest rate or interest rate formula, interest type and conditions foreach Class in the proposed structure. The conditions may include, forexample, PAC ranges and wal boundaries. The user input data alsoincludes the principal and interest allocation rules to be used tochannel payments received on the assets of the Series to the inputClasses. If desired, the user input can include pricing data.

The REMIC Pool Planning and Stress Process (block 5-03) createspreliminary files for the input Classes and for the Series paymentrules. A major function of the REMIC Pool Planning and Stress Process isto test cash flow during the planning process. The REMIC Pool Planningand Stress Process receives data (line 5-22) from the Asset PoolPrepayment Model (block 5-01) showing the cash flows generated by themortgage-backed assets and processes these cash flows through the Seriespayment allocation rules. These calculations determine whether the cashflows from the assets are sufficient to meet the payment obligations ofthe Classes. Also, they determine whether there is any build up ofunused cash under the payment rules.

If the proposed payment allocation rules fail in any material respect,the failure is transferred (line 5-26) to the Risk, Operational andLegal Evaluation Process (block 5-05). Since the issuer guaranteespayments on EFC Classes, any cash flow deficiency creates business andlegal risks that require immediate resolution. The Risk, Operational andLegal Evaluation Process performs the risk analysis needed for thisresolution. Since the issuer usually does not manage the cash flowsprocessed through an EFC Series, a cash flow surplus also createsbusiness and legal risks that are resolved with the use of the Risk,Operational and Legal Evaluation Process analysis programs. If theplanned structure is disapproved because of the cash flow failure, theresults are returned to the user (line 5-42) for modification of theSeries structure.

The REMIC Pool Planning and Stress Process (block 5-03) is aninteractive-process. In addition to validating the proposed cash flowallocation formulae, the REMIC Pool Planning and Stress Process performsstress analysis to determine if payments may be reallocated from lessvaluable Classes to more valuable Classes. For example, the analysis maydetermine that the size of the SUP cash flow intended to support the PACClasses of the Series, is greater than that needed based on the cashflow projections received (line 5-22) from the Asset Pool PrepaymentModel (block 5-01). In this case, the information is returned to theuser via an interactive loop (line 5-41) for reevaluation. As a resultof the reevaluation, the user may enter revised Class data (line 5-13)or revised asset data (line 5-11). FIGS. 9-1 through 9-16 illustratepart of exemplary, projected principal allocations to the Classes of aproposed Series structure. FIGS. 9-1 to 9-16 constitute a single tablewhich is properly viewed by placing each drawing sheet side by side insequence. FIGS. 9-17 to 9-26 are tables explaining the notation andabbreviations used in the columnar headings of FIGS. 9-1 to 9-16.

The principal function of the FLT/INV Class Structuring Process (block5-04) is to determine the extent to which part of a proposedfloating-rate Class can be funded most economically with a derivative.It integrates output describing the proposed REMIC Pool structure (line5-24) from the REMIC Pool Planning and Stress Process (block 5-03), withoutput describing derivative costs (line 5-23) from the DerivativesModel (block 5-02). For example, if the user proposes (line 5-13) aLIBOR based FLT/INV Class combination funded with SUP cash flow andproposes LIBOR corridors to fund part of the FLT Class (line 5-12), theFLT/INV Class data first are processed by the REMIC Pool Planning andStress Process which calculates the SUP cash flow. The derivatives datafirst are processed by the Derivatives Model to prepare appropriatecorridor cost tables and relevant inverse-rate data tables. The outputdata of both of these processes are combined in the FLT/INV ClassStructuring Process for integrated analysis.

A derivative integrated into an EFC Series structure may be indexed to anotional amount that declines with the balance outstanding from time totime of a SUP cash flow or a target scheduled for a FLT Class. Thesenotional amounts are determined by the REMIC Pool Planning and StressProcess (block 5-03) and transferred (line 5-24) to the FLT/INV ClassStructuring Process (block 5-04). On the other hand, the derivative maybe indexed to a notional amount that declines with the balance of theunderlying Mortgage Asset Account, or to the balance of a reference PCPool or other independent financial information. Schedules of projectedoutstanding balances of Mortgage Asset Accounts are calculated by theAsset Pool Prepayment Model (block 5-01) and uploaded (line 5-21) to theDerivatives Model (block 5-02) and from there are transferred (line5-23) to the FLT/INV Class Structuring Process (block 5-04). Independentreference information is input by the user (line 5-12). FIGS. 10-1through 10-4 illustrate part an exemplary table of notional principalamount schedules determined by the REMIC Pool Planning and StressProcess and uploaded to the FLT/INV Class Structuring Process foranalysis of a derivative indexed to the cash flow supporting EF and ESClasses. FIGS. 10-1 to 10-4 constitute a single table which is properlyviewed by placing each drawing sheet side by side in sequence. FIG. 10-5is a table explaining the notation and abbreviations used in thecolumnar headings of FIGS. 10-1 to 10-4.

The FLT/INV Class Structuring Process (block 5-04) also computesvaluations for the INV Classes affected by the derivatives planned forthe EFC Series. Usually, the market for EFC Series is driven by the cashflow requirements of PAC and FLT Class investors, and the EFC SeriesSystem generates FLT Classes to meet these requirements. Thus, the useof derivatives to fund FLT Classes usually leads to modifications in theinterest rate formula of the related INV Class. The FLT/INV ClassStructuring Process translates the proposed derivatives into appropriateinverse-rate formulae and calculates price adjustment tables for the INVClasses as a function of the adjusted inverse-rate formulae. FIGS. 11-1through 11-4 illustrate part of an exemplary, determination by theFLT/INV Class Structuring Process of the value of a proposedinverse-rate formula when calculated against historical values of LIBOR.11-1 and 11-3 side by side and FIGS. 11-2 and 11-4 side by side; withFIG. 11-2 beneath FIG. 11-1. FIG. 11-5 is a table explaining thenotation and abbreviations used in the columnar headings of FIGS. 11-1to 11-4.

The results of the calculation by the FLT/INV Class Structuring Process(5-04) loop back iteratively (line 5-25) into the REMIC Pool Planningand Stress Process (block 5-03). For example, value increases calculatedby the FLT/INV Class Structuring Process may lead to a reassessment ofthe size of the related PAC Class support. This information may feedback to the user (line 5-41) and lead to a revision in the Class dataand prepayment data input at 5-13. This iterative process may continueover a period of weeks as additional assets (line 5-11) and Classes(line 5-13) are added to the Series.

The output (line 5-26) of the REMIC Pool Planning and Stress Process(block 5-03) and the output (line 5-27) of the FLT/INV Class StructuringProcess (block 5-04) combine to form a complete proposed structure forthe EFC Series. At the next stage of the EFC Series System, these itemsare entered in the Risk, Operational and Legal Evaluation Process (block5-05). This process calculates the interest-rate risk and credit risk ofany issuer positions in the structure and evaluates them againstCorporate guidelines. Any risks exceeding guidelines are documented andtransferred to the Financial Planning Function (FIG. 4, block 4-21). TheRisk, Operational and Legal Evaluation Process also estimates theissuer's resources required to settle and administer the Series andtransfers this estimation to the Business Planning Function (FIG. 4,block 4-23).

The Risk, Operational and Legal Evaluation Process (block 5-05) formsthe interface between the proposed EFC Series and the issuer's legalreview functions (FIG. 4, block 4-22). These functions assure that theproposed EFC Series conform to applicable federal and state laws and tothe issuer's policies regarding investment securities. If the reviewfunction determines noncompliance of any aspect of the proposed EFCSeries, the reviewing party may propose structural changes intended tocorrect the noncompliance (lines 5-42, 5-43). For example, if the reviewdiscloses a Class impermissibly issued by an investment trust pool, thereviewing party may use the Risk, Operational and Legal EvaluationProcess interface to evaluate the feasibility of restructuring theSeries to issue the Class from a REMIC Pool, and then may recommend therestructuring.

After a proposed EFC Series structure completes the Risk, Operationaland Legal Evaluation Process (block 5-05), it is a complete approvedplan ready for operational implementation. Usually, it is transferred(line 5-31) to the Series Validation Process (FIG. 12, block 7-01) ofthe Deal Structure Module as the user input for a Series to be issued.

FIG. 12 depicts the principal data processing systems components of theDeal Structure Module of the EFC Series System (FIG. 4, block 4-02).This Module verifies user Series structure and initializes the dataprocessing files for the Series. These files are used as the basis formonitoring the delivery of assets, preparing the disclosure information,issuing the EFC Classes and paying the EFC Series. The process beginswith input by a user (line 7-11) to the Series Validation Process (block7-01). Frequently, this input is the data detailing the Series planapproved by the Risk, Operational and Legal Evaluation Process of theRisk Analysis and Planning Module (FIG. 5, block 5-05).

The Series Validation Process (block 7-01) generates a list of datarequirements for the type of Series proposed and cross-checks the listagainst the input data describing the Series structure (line 7-11).Often, the input data is incomplete or incorrect and the SeriesValidation Process generates a Deliverables Checklist detailing theitems required to completely and correctly initialize the Deal StructureModule. The Deliverables Checklist is transmitted to the user (line7-41) for completion and resubmission (line 7-11). This is aninteractive function that continues until the Series data requirementsare complete and correct. Further, the Deal Structure Module allows theuser to make changes to the Series structure for a period of time afterinitialization. These changes are entered into the Module by means ofthis loop.

The Series Validation Process (block 7-01) prepares and manages the datafiles for each new Series. As the user description of the Seriesstructure is completed and corrected, the Series Validation Processcreates the initial asset files, class files, disclosure files andpayment files for the Series. The data are entered into a managementdata base called the Tracking System which is updated and changedinteractively for a period of weeks as the user adjusts theSeries-structure in response to changing market conditions.

A key function of the Series Validation Process (block 7-01) is theverification of the cash flows of the Series structure. The data enteredinto the Tracking System includes a description of the kind of assetsexpected to be delivered to fund the Series, the characteristics of theClasses to be issued by the Series and the rules for allocating paymentsfrom the assets to the Classes. The Tracking System verifies that forall possible payment scenarios, monthly payments received on themortgage-backed and derivative assets equals monthly payments made onthe Classes and the derivative positions.

The Series Validation Process (block 7-01) coordinates an independentverification by an outside party, Independent Securities VerificationFunction (FIG. 4, block 4-28). This Independent Securities VerificationFunction receives the data describing the EFC Series structure andindependently verifies that payments received by the EFC Seriescorrespond to its payment obligations. If the verification fails, thedeficiency is reported to the user via the completion loop (line 7-41)of the Series Validation Process.

The Disclosure Validation Process (block 7-04) also performs importantverification functions. A Series Prospectus may make representationsregarding the performance characteristics of certain of the EFC Classes.For example, PAC Classes may be represented as paying according toschedule if prepayments remain within a specified PSA range. Derivativepositions may be expected to support a maximum rate schedule ifprepayments are uncorrelated with index values. Sequential Classes maybe represented as having weighted average lives which information is abasis for determining compliance with regulatory guidelines. Theseconditions are important to investors, but are complex and difficult todetermine. The EFC Series System assumes the responsibility for makingthese calculations by disclosing the results and representing them toinvestors.

The Disclosure Validation Process (block 7-04) verifies that theconditions to be represented by EFC Series are met. The DisclosureValidation Process uses the Tracking System to accesses the EFC Seriesdata files (line 7-23) and create the appropriate scenarios to test theconditions. The scenarios are run against the data files and the resultscompared to the planned disclosure. The Disclosure Validation Processalso coordinates an independent verification of the conditions by theIndependent Securities Verification Function (FIG. 4, block 4-28). Ifthe Series structure fails either of these verification tests or ifthere are material differences, then the failure feeds back to the EFCSeries data base and the user (lines 7-42 and 7-41) for resolution.Resolution may take the form of a change in the Series structure (line7-11) starting the process again, or resolution may change thedisclosure information on which investors may rely.

As the specifications for a Series are completed, verified and enteredinto data files, the Series Validation Process (block 7-01) makesavailable (line 7-21) to the Asset Delivery Process (block 7-02), theSeries specifications for mortgage-backed assets.

The Asset Delivery Process is activated at a later time when it receivesthe initial mortgage-backed asset file from the user (line 7-12). ThisProcess then edits the initial asset file item by item to assure thatthe initial assets conform to the asset requirements used during theplanning phases of the Series and reflected in the conditionsrepresented by the disclosure for the Series. Edit failures arecommunicated to the user for resolution (line 7-43). Resolution may beachieved, for example, by substituting conforming assets (line 7-12) orby revising Series representations (line 7-11). When the editing processis completed, the Asset Delivery Process prepares the expected assetsfile for the Series.

The Asset Delivery Process (block 7-02) transfers the expected assetfile to the appropriate transfer agent, depending on the type of asset(FIG. 4, block 4-24). At settlement, this file is matched by the wireroom of the transfer agent to the file of assets actually delivered. Anydelivery failures are reported back to the Asset Delivery Process forresolution. After all delivery failures are resolved, the Asset DeliveryProcess prepares the final asset files for the Series and enters thedata in the All Systems Data Base (FIG. 4, block 4-26).

The Derivative Account Initialization Process (block 7-03) functions toset up the account files for the derivative assets of the Series and tomonitor the delivery of these assets. As the specifications for a Seriesare completed, verified and entered into data files by the SeriesValidation Process (block 7-01), the Derivative Account InitializationProcess draws on the files (line 7-22) for the derivative assetsspecifications. The Derivative Account Initialization Process edits thespecifications for the interest-rate derivatives against the terms andconditions of the applicable Master Agreement and generates the requiredtrade tickets. After the editing step is completed, the DerivativeAccount Initialization Process prepares an expected derivatives file andenters the data regarding the derivatives into the All Systems Data Base(FIG. 4, block 4-26). At settlement, the Derivative AccountInitialization Process (block 7-03) receives and records confirmationsof the derivatives positions of the Series and matches the confirmationsagainst the expected derivatives file. Any delivery failures areresolved and the Derivative Account Initialization Process prepares thefinal derivatives file.

Information developed by the Disclosure Validation Process (block 7-04)forms part of the basis (line 7-25) for the Prospectus PreparationProcess (block 7-06). The Prospectus is a text description of the Seriesthat describes legally binding terms and conditions of the Classes, suchas payment dates, holder of record dates, interest rates and methods ofpayment. The Prospectus also frequently includes charts and tablesdescribing assumed prepayments and yields for the Classes under variousscenarios. These charts and tables are a significant part of the Seriesbecause investors rely on them when purchasing Classes. The ProspectusPreparation Process prepares this text both for printed distribution andfor electronic posting on, for example, the issuer's Internet Web-Site(line 7-27).

The Prospectus Preparation Process (block 7-06) begins when a userenters a description of the Series structure (line 7-11). The Processreviews prior Series and identifies one with characteristics similar tothe current Series. The Process then notifies the Typesetting andPrinting Function (FIG. 4, block 4-27) to activate the old document formodification. Depending on the complexity and features of the currentSeries, the old document will be revised, often extensively, toincorporate a different mix of features, integrate these features, andreflect the economics of the current structure. This process takesseveral drafts and incorporates charts, tables and other informationserially as it becomes available through the Disclosure ValidationProcess (block 7-04). The last step in the iterative portion of theprocess is the receipt of the final payment dates and CUSIP numbers forthe Classes. When this is received, notice is sent to the Typesettingand Printing Function to generate the physical documents.

The Electronic Disclosure Initialization Process (block 7-07) receivesinformation (line 7-26) developed by the Disclosure Validation Process(block 7-04) as the basis for disclosure on the Internet. This processcreates an initial disclosure file with Class level data. For each Classof the Series, the file shows the original principal (or notionalprincipal) amount, class coupon, interest type, principal type, wal;final maturity and CUSIP. The process also records in the file data thatwill be the basis for Internet disclosure at the Series level.

FIG. 13 depicts the principal data processing systems components of theSeries Administration Module (FIG. 4, block 4-03). This Module isactivated several days before settlement of the Series and performsfunctions related to the issuance of the Classes and to their continuingpayment. These processes begin with data input (line 8-11) to the SeriesIssuance Process (block 8-01). Usually, the input items are the Classfiles, derivatives files and disclosure files prepared by the variousDeal Structure Module processes (FIG. 12, blocks 7-03, 7-05, 7-06 and7-07).

The Series Issuance Process (block 8-01) functions together with theapplicable fiscal agent (FIG. 4, block 4-25) to create the Classes. MostClasses are issued as book-entry securities through the Federal ReserveBank (“FRB”) system or through The Depository Trust Company system. Theprocess begins by assigning CUSIP numbers to the Classes to be issued bya Series. The Series Issuance Process generates an original issue file,CUSIP report and broadcast file for the Series. The original issue filecontains the class level data required for Series issuance and is a basefile for releasing the securities. The CUSIP report is forwarded to theCUSIP Bureau and the broadcast file is forwarded to the FRB or otherfiscal agent.

When the Series Issuance Process (block 8-01) forwards the broadcastfile to the FRB, it verifies the data against the Prospectus, derivativetrade tickets and other information created by the Deal StructureModule. If necessary, the Series Issuance Process corrects the originalissue file and forwards any revisions to the FRB or other fiscal agent.After verification, the Series Issuance Process sends the original issuefile to the wire room or other transfer agent (FIG. 4, block 4-25).

On the day the Series is issued, the Legal Function (FIG. 4, block 4-22)notifies the Series Issuance Process (block 8-01) that the closingconditions have been met and authorizes the release of the Classes. TheSeries Issuance Process then notifies the wire room (or transfer agent)to transfer of the securities to the user accounts and to begin payment.The Series Issuance Process prints the original issue settlementconfirmations and reconciles the cash and original issue wires.

The Derivatives Tracking System (block 8-02) creates and maintainsaccounts for the derivative instrument components of the Series. Whenthe Series Issuance Process (block 8-01) verifies the original issuefile, it forwards the derivatives account data (line 8-13) to theDerivatives Tracking System. The Derivatives Tracking System verifiesthe status of the derivative accounts and creates the final derivativesfiles for the Series. At this time, the accounts typically are operativeexcept for the pre-condition of the settlement of the Series.

On the day the Series is issued, the Legal Function (FIG. 4, block 4-22)notifies the Derivative; Tracking System (block 8-02) that the closingconditions have been met and authorizes the activation of the derivativeaccounts. The Derivatives Tracking System then activates the derivativeaccounts to make and receive payments from counterparties. In somecases, amounts payable on a Class may be conditioned on the status of arelated derivative account. When the Derivatives Tracking Systemactivates such a conditioning account, the Derivatives Tracking Systemcreates a continuing notice (line 8-15) of the condition status for theClass Payment Process.

The Class Payment Process (block 8-03) receives the verified class leveldata (line 8-12) needed to make payments on the Classes from the SeriesIssuance Process (block 8-01) and, in some cases, receives conditioningdata (line 8-15) from the derivatives Tracking System (block 8-02). Atthis point the Class Payment Process queries the All Systems Data Base(FIG. 4, block 4-26) to determine if the asset data have been loaded.When the asset data are loaded, the Class Payment Process runs the firstpayment for the Series and prints reports that are used to reconcile thecash flows from the assets of the Series with the Series payment rulesin the Prospectus and the payment factors on the Classes. The ClassPayment Process tries out the payment rules and floater formulae andinitiates data corrections if necessary. After any necessary datacorrections are made, the Class Payment Process finalizes the classpayment file.

The Class Payment Process (block 8-03) processes payment through theclass payment file. The Class Payment Process selects the Series thatneed to be run and executes the payment runs through the class paymentfile. The determination of the amount of principal payable on a Class isa complex process. First, the amounts of principal paid on theapplicable asset pools must be determined. Next, these amounts must beprocessed through the structural components for a Series, as shown inFIG. 1. At each step in the structure flowthrough, the amounts must beprocessed through the allocation rules and/or conditions applicable tothat structural element. Finally, the amounts must be tested against anySeries level conditions that may apply to the Class principal payments.

The determination of the interest payable on floating-rate andinverse-rate Classes also is a complex process. The Class PaymentProcess (block 8-03) gathers if all of the index rates from theirvarious locations. Some examples of locations include the Wall StreetJournal and the H15. Once the rates are gathered and input into thepayment system they are reviewed. The system then goes through all ofthe payment rules of all the Series to determine the updated coupons.Once the process is finished, the group creates the floater disclosurefiles and the coupons are verified manually. Floater tie out reports aregenerated and the group ties out the files with the reports. When thefiles are tied out, the files are sent (line 8-16) to the ElectronicDisclosure System (block 8-04).

The determination of the amounts payable on derivative instrumentsinvolves both of these complexities. Typically, the derivative has anotional principal amount indexed to principal payments made on a Classof the Series. It also has an index rate that is a function of the indexused for a floating-rate Class of the Series. The Class Payment Process(block 8-03) must identify the applicable parameters used by thederivative components and trace these parameters through both theprincipal determination system and the interest determination system.

When the payment processing is complete, the Class Payment Process(block 8-03) checks the job monitor for errors and/or terminations. TheClass Payment Process then reconciles the asset cash flows to the Classpayments. After the payment process has been run for all Series, theClass Payment Process runs the REMIC residual class payment executablewhich rolls up payment to the ultimate residual classes of Series withtiers of REMICs. For callable processing, the Class Payment Process runsthe call redemption executable and integrates redemption payments withthe normal payment process.

The Class Payment Process (block 8-03) generates payment files for thepaying agents containing all securities that are paid through therespective paying agent. Once the file is created, it is reconciled tothe payment information generated earlier in the process. When it isproperly tied out, the file is transmitted to the respective payingagent (line 8-16). Upon receipt, the paying agents edits the file andclears any edits through the Class Payment Process (line 8-21). Afterthe information is completely verified, the paying agents generate a P &I payment proof that is transmitted (line 8-21) to the Class PaymentProcess where it is tied out. After this check is completed, the ClassPayment Process authorizes payment.

The Electronic Disclosure System (block 8-04) posts and maintains fileson the Internet that contain investor information. In particular, theamount of principal payable on a Class is not known in advance and mustbe determined on a monthly basis by the Class Payment Process (block8-03). As soon as these determinations are made, the ElectronicDisclosure System posts the amounts to the Internet as a quick andreliable way of notifying investors. Similarly, floating-rates andinverse-rates on Classes are not known in advance and must bedetermined, usually on a monthly basis. The Electronic Disclosure Systemposts the amounts to the Internet as soon as these determinations aremade.

The Electronic Disclosure System (block 8-04) also maintains disclosurefiles applicable to the Series as a whole. These files include assetassumptions, assets actually delivered, payment schedules, PAC tablesand settlement schedules. The Electronic Disclosure System receives taxinformation (line 8-18) related to the Series and its Classes from theTax Reporting System (block 8-05) and posts this information to, forexample, Internet files.

The Tax Reporting System (block 8-05) prepares tax files for theappropriate structural components of a Series. In FIG. 1, for example,each of the REMIC Pools (blocks 1-11, 1-12 and 1-130 and EFC Pools(blocks 1-14 and 1-15) is a separate person for federal income taxpurposes. Further, different tax rules apply to the various structuralcomponents. The REMIC Rules apply to the REMIC Pools and the GrantorTrust Rules apply to the EFC Pools. The Tax Reporting System alsoprepares tax files regarding the information required to be disclosed ofthe Classes of the Series.

The information needed for the tax files comes from a variety ofsources. Information that is available at settlement and is constantthroughout the life of the Series generally is available to the TaxReporting System through (line 8-14) the Series Issuance Process. Suchinformation includes initial asset values, Class prices, derivativespremiums and settlement cash payments. It also includes formulas to beused for the section 212 expense allocation to the structural componentsof the Series. Other information, such as floating-rates, inverse-ratesand derivative rates must be determined on a monthly bases. Thisinformation generally is available to the Tax Reporting System through(line 8-17) the Class Payment Process.

As the information is entered into the Tax Reporting System (block8-05), queries are run to validate that the information is storedcorrectly in the database. The Tax Reporting System runs the tax closingprograms through the tax system and checks the job monitor for errorsand edits. The Tax Reporting System then runs more queries to insurethat the data is reasonable. The Tax Reporting System compares the cashflows from the Series Validation Process (FIG. 7, block 7-01) to thecash flows from the tax files. If there are differences, the TaxReporting System performs any necessary data corrections. The processcontinues until the all Series records tie.

The Tax Reporting System (block 8-05) obtains tax identification numbersfor the pools established by the Series and verifies that all necessaryand appropriate tax elections have been made. The Tax Reporting Systemalso submits required Tax Forms 8811. On a monthly basis after the ClassPayment Process (block 8-03) is complete, the Tax Reporting Systemgenerates the monthly tax information. Automated edits are generatedthrough the system and the results are stored. The reinvestment programis run for deals with this cash flow feature. Lastly the alternative taxprogram is run for investment trust transactions after settlement (seeFIG. 1, blocks 1-41, 1-42 and 1-43). When the job stream is finished,the Tax Reporting System prints a job monitor showing any edits anderrors for review. The Tax Reporting System creates the class level Form1099 tax information and transfers (line 8-18) the information to theElectronic Disclosure System (block 8-04).

On a quarterly basis the Tax Reporting System (block 8-05) rolls up prorata portions of four months of data to create the quarterlyinformation. The group selects deals to run through the quarterlyprocess and runs them through the quarterly tier level programs. It thenchecks the job monitor and resolves any outstanding edits or errors.Once the deals have been cleared and rerun, the Tax Reporting Systemprepares the quarterly tax documentation for review. After review, thequarter Schedule Qs tax reports are printed and mailed to the holders.

The Tax Reporting System (block 8-05) prepares the annual tax reportingrequired for all Classes. The Series are selected and run through thetax system and the reports are printed. The output items of this processare the Forms 1066, K-1s and backup documentation for each of thestructural components of each Series. The algorithms used for acomponent are a function of the tax status of that component. REMICRules apply to REMIC Pools and Grantor Trust Rules apply to EFC Pools.The information is reviewed and sorted by holder and then is mailed tothe investors.

It will be apparent to those skilled in the art that variousmodifications and variations can be made to the invention withoutdeparting from the scope or spirit of the invention. For example, thepresent invention is not limited to creating investment securities byadjusting the principal and interest cash flows on floating rate andinverse floating rate bonds, as disclosed in the above-describedexamples. Other possible applications of the invention for creatinginvestment securities from interest-rate derivatives and mortgage poolsinclude adjusting the principal and interest cash flows on PlannedAmortization Classes, Targeted Amortization Classes, Scheduled Classes,Accrual Classes and/or Sequential Pay Classes. Other modifications andembodiments of the invention will be apparent to those skilled in theart from consideration of the specification and practice of theinvention disclosed herein. Therefore, it is intended that thespecification and examples be considered as exemplary only, with a truescope and spirit of the invention being indicated by the followingclaims.

1. A computer-implemented method for creating structured securities, the computer including a processor and memory, the method comprising steps performed by the computer of: creating, by the processor, a securities structure backed by mortgage pool components in accordance with structuring constraints, the securities structure having one or more classes of securities, at least one class being subject to an artificial leverage limitation under the structuring constraints because it is designated for absorbing prepayment risk; restructuring, by the processor, one of the at least one class designated for absorbing prepayment risk to overcome the artificial leverage limitation by combining it with at least one cash flow coming from interest-rate derivative components; issuing, by the processor, the structured securities.
 2. The method according to claim 1, wherein the interest-rate derivative components comprise at least one exchange of cash flows backed by one or more mortgage pools for cash flows that are not mortgage-backed, the restructuring step combining the non-mortgage-backed cash flows with cash flows backed by one or more mortgage pools.
 3. The method according to claim 1, wherein the restructuring step comprises adjusting cash flow characteristics of the at least one class designated for absorbing prepayment risk.
 4. The method according to claim 1, wherein the restructuring step comprises allocating principal, interest, and other cash flows from the interest-rate derivative and the mortgage pool components to the at least one class designated for absorbing prepayment risk.
 5. The method according to claim 4, wherein the restructuring step further comprises adjusting the principal and interest cash flow characteristics of the at least one class designated for absorbing prepayment risk based on the result of analyzing the risk elements of the interest-rate derivative and mortgage pool components.
 6. The method according to claim 1, wherein at least one of the structured classes of securities has floating interest rate characteristics.
 7. The method according to claim 1, wherein the overall value of the securities structure is increased.
 8. The method according to claim 1, wherein the restructuring step further comprises: not restructuring one or more other classes of the securities structure.
 9. The method according to claim 1, wherein the restructuring step further comprises: restructuring, by the processor, more than one class of the securities structure.
 10. A computer program product, tangibly embodied in a non-transitory computer-readable storage medium, for creating structured securities, the computer program product comprising computer-readable media having computer-readable code, which, when executed by a data processor in a computing platform: creates a securities structure backed by mortgage pool components, the securities structure having one or more classes of securities, at least one class being subject to an artificial leverage limitation under the regulatory structuring constraints because it is designated for absorbing prepayment risk; restructures one of the at least one class designated for absorbing prepayment risk to overcome the artificial leverage limitation by combining it with at least one cash flow coming from interest-rate derivative components; and creates the structured securities.
 11. The computer program product according to claim 10, wherein the interest-rate derivatives comprise at least one exchange of cash flows backed by one or more mortgage pools cash flows that are not mortgage-backed, the program code for restructuring comprising program code for combining the non-mortgage-backed cash flows with other cash flows backed by one or more mortgage pools.
 12. The computer program product according to claim 10, wherein restructuring comprises adjusting cash flow characteristics of the at least one class designated for absorbing prepayment risk.
 13. The computer program product according to claim 10, wherein restructuring comprises allocating principal, interest and other cash flows from the interest-rate derivative and mortgage pool components to the at least one class designated for absorbing prepayment risk.
 14. The computer program product according to claim 13, wherein restructuring further comprises adjusting the principal and interest cash flow characteristics of the at least one class designated for absorbing prepayment risk based on the result of analyzing the risk elements. 